Universal move upends music biz

Universal Music Group's brash move to slash prices 30% on almost all the CDs it distributes includes another radical departure from the status quo: a switch in spending from in-store and local marketing to national TV and print advertising.

In addition to cutting retail prices to an average $12.98 from $16.98 and $18.98 effective Oct. 1, Universal's labels, which include Island Def Jam, Interscope and A&M, will shift to what one insider termed "artist-driven" ads in lieu of "co-op" advertising.

"Co-op" advertising, a system in which labels give money to music retailers to place co-branded local ads, typically eat up large portions of marketing budgets, according to music executives. Record company executives have long viewed co-op advertising as something of a necessary evil.

But as market leader Universal slashes prices in a bid to win back sales, it plans to use advertising to let consumers know they can buy music for less. The music industry has seen a sharp decline in sales in recent years, which it attributes to factors including online piracy and a high price point for CDs.

conditions

In order to buy from Universal at the lower wholesale prices, retailers must agree to give Universal 25% of their shelf space, according to the insider and a sales executive at an outside label. Given that Universal commands an estimated 30% of U.S. music sales that could prove less onerous than it sounds. (Officials at the Tower Records and Wherehouse chains did not return calls seeking comment.)

The upshot of the switch, said the insider, will be an additional "tens of millions of dollars" that had been spent on co-op ads going to TV and print advertising. Last year, Universal Music Group spent $19.8 million in media, according to TNS Media Intelligence/CMR.

ad boon

"This is something they haven't done before," said the insider, suggesting an upside for Viacom's MTV as well as the broadcast networks-not a common venue for music ads-and magazines such as Wenner Media's Rolling Stone, Miller Publishing Group's Spin and Vibe, and Time Inc.'s People and Entertainment Weekly. A spokesman declined to comment on marketing spending or direction.

"If they lower prices and it doesn't increase consumer [traffic] to the stores, it would be more difficult to raise prices again," said a spokesman for the talent agency The Firm, which represents Universal artists Mary J. Blige, Limp Bizkit, and Puddle of Mudd. A sales executive at another label put it more bluntly: "Labels are terrified it might work, and terrified it won't."

"If you recognize competition includes illegal downloads and blank CDs," said Gerard Cosloy, co-owner of Matador Records and Filmworks, labels need a "more creative solution than suing college students."

One major-label marketing executive said the ad increase will most likely benefit TV. "If you have a brand new rock band, going to MTV2 gives you a national focus and has proven in my experience to really sell records."

"We've heard some rumblings" of more ads headed to print in the wake of Universal's decision, said Rob Gregory, publisher, Rolling Stone. But, he conceded, "the floodgates are not going to open for print from the music industry. The bias is still going to be towards sound and motion for obvious reasons."